Is One-Price Right for Your Dealership? 5 Reasons to Say Yes.
What is a one-price auto dealership?
A one-price auto dealerships lists vehicles at the pre-negotiated lowest price they will sell it for. This creates a no-haggle, hassle-free buying process for the customer, so they can make purchase decisions knowing the true price of the car.
In this latest blog in my series on modern retailing, I’m taking on one of the biggest topics in the industry: the one-price store. This model has been around for nearly 20 years. Yet, few dealerships have adopted it even as this model is more relevant now than ever before.
For a dealership, moving to a one-price sales model requires careful consideration and stamina to weather what will be a difficult transition. You will likely lose some salespeople, but as with any change, there is plenty of reward.
Here are five reasons why you should take the leap:
1It will improve the customer experience.
Customers have been wanting haggle-free pricing— including financing and the sale of F&I products —for decades. And they will reward dealerships that offer that experience. Consider Avondale Toyota in Arizona, which has been a one-price store for nearly two decades. Dealer Brian McCafferty reports that customer feedback is overwhelmingly positive and almost half of their business comes from repeat and referral customers.
Beaverton Honda in Oregon is another dealership that has been one-price for many years. The dealership’s website clearly states that no haggling is necessary — everyone pays the same fair price for the same car. Customers love it so much that in 2019, the dealership was named a CarGurus Top Rated Dealer for providing exceptional customer service.
2It will deliver consistent profit margins.
A one-price store requires dealers to price competitively for the market and implement non-traditional pay plans such as hourly or salary compensation structures. It’s a common misconception that such strategies will erode gross. However, one-price can lead to consistent profit margins and a better balance in overall profitability since extreme discounting and extreme markups are no longer on the table.
3It will reduce employee turnover.
The backstabbing and snarky behavior that occurs when salespeople are 100 percent focused on front-end sales disappears with a one-price model. This creates a more relaxed team environment that naturally reduces employee turnover.
One-price stores also offer the stability of hourly pay or a set salary. At Avondale, for example, the average compensation for a salesperson is about $480 per car with an opportunity to earn extra fees for selling F&I products. Alleviating the stress of commission-only pay plans relaxes the buying process for employees and customers, which makes everyone happier.
4It will cut marketing costs.
Dealers don’t get rich selling new cars. In fact, the average front-end gross profit is just over $1,000 per vehicle. Slim margins make reducing the cost of selling a unit more important than ever.
One-price helps to reduce costs by cutting out the competition that often leads to big advertising bills. As an example, NADA reports the average cost to advertise a new vehicle exceeds $600. One-price dealers typically spend less than $250.
5It will bring value back to F&I.
For too long, F&I managers have been pushing products that are good for them and not for the customer. One-price stores typically offer a standard bonus for any F&I products sold, so there’s no benefit to pushing high-priced packages. Instead, these stores are getting back to the “prove it” mentality and using evidence manuals to make their cases for products.
Evidence manuals are great, because they help customers see what can happen with a vehicle once the service warranty expires. Customers are holding on to vehicles longer than ever before, and evidence of what can happen encourages them to protect their investments without shady tactics or adding undue costs to a final payment.
A one-price sales model is a natural progression for dealers looking to adopt the modern retailing experience today’s customers demand. It will take some getting used to, and you’ll likely lose some staff who are resistant to change. When you do make the switch, you’ll be rewarded with trust and wildly enthusiastic fans.